Capacity Constraints And Channel Mix Will Shape Future Earnings But Support A Fair Outlook

Catalysts

About Birkenstock Holding

Birkenstock Holding designs, manufactures and sells footwear centered on its proprietary footbed across global B2B and DTC channels.

What are the underlying business or industry changes driving this perspective?

• Although global demand for Birkenstock products is currently strong across regions and younger demographics, the company is already running into production capacity constraints. If factory expansions such as Pasewalk and further cork latex and final assembly investments do not keep pace, revenue growth could be capped relative to current order books and retail sell through.
• While consumer interest in in person shopping and tactile footwear experiences currently supports wholesale partners and owned stores, this preference also shifts mix toward B2B, which carries lower gross margin than DTC. A sustained tilt to wholesale could limit future gross margin expansion even if total sales continue to scale.
• Despite healthy appetite for higher priced leather and closed toe silhouettes, continued reliance on price increases to offset tariffs and FX headwinds may eventually meet consumer resistance or require more surgical pricing. This would constrain average selling price growth and temper earnings leverage.
• Although closed toe and expansion categories like lace ups are gaining share and help reduce seasonality, these newer product areas still need consistent repeat demand over multiple seasons. Any slowdown in adoption would weigh on incremental revenue and keep net margins more dependent on the core sandal franchises.
• While wholesale partners are currently increasing shelf space and reorders in a largely flat footwear market, this share gain is occurring against weaker peers. If competitor brands stabilize or regain momentum, Birkenstock may see slower shelf space gains, which would moderate future revenue growth and limit upside to EBITDA margins from operating leverage.

Assumptions

This narrative explores a more pessimistic perspective on Birkenstock Holding compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Birkenstock Holding's revenue will grow by 11.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 16.6% today to 19.3% in 3 years time.
• The bearish analysts expect earnings to reach €553.8 million (and earnings per share of €2.92) by about January 2029, up from €348.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.0x on those 2029 earnings, down from 19.3x today. This future PE is lower than the current PE for the US Luxury industry at 20.6x.
• The bearish analysts expect the number of shares outstanding to decline by 2.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.77%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Capacity constraints are already limiting Birkenstock's ability to meet what management describes as exceptionally strong demand across Europe and APAC. If factory expansions in locations such as Pasewalk, Görlitz and Arouca continue to add productive output and the supply bottleneck eases, revenue could grow faster than expected and support higher earnings.
• Management repeatedly highlights very strong sell through, higher shelf space at wholesale partners and record back to school trends in both the U.S. and EMEA. If this brand momentum with younger consumers and closed toe styles persists over multiple seasons, the combination of volume growth and firm pricing could lift both revenue and EBITDA margins.
• The company is using targeted price increases alongside mix shifts toward higher priced leather and closed toe silhouettes. It so far reports no consumer pushback and full price realization above 90%, which, if sustained, could support ongoing average selling price gains and contribute to higher gross margin and net profit.
• Birkenstock owns its supply chain and is investing roughly €80 million of annual CapEx into manufacturing, logistics, IT and a growing fleet of owned stores that show high teens same store sales growth and quick paybacks. If these investments keep increasing efficiency and broadening distribution, they could support higher revenue and operating margins.
• Long term channel and geographic trends, such as double digit constant currency growth in all regions, strong demand in China within APAC and continued preference for in person shopping that benefits both wholesale and owned stores, create a backdrop where continued share gains and mix improvements could support higher earnings and potentially a higher share price multiple.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Birkenstock Holding is $45.35, which represents up to two standard deviations below the consensus price target of $60.82. This valuation is based on what can be assumed as the expectations of Birkenstock Holding's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $77.78, and the most bearish reporting a price target of just $42.81.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be €2.9 billion, earnings will come to €553.8 million, and it would be trading on a PE ratio of 16.0x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $42.8, the analyst price target of $45.35 is 5.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.